Red Hat: Channel Will Account For 70 Percent Of Revenue In Two Years

Open-source software vendor Red Hat expects the channel to account for between 70 percent and 75 percent of its sales within two years as the company continues to expand beyond its core Linux product into middleware and cloud computing software.

Red Hat recently restructured its direct-sales force to focus on a smaller number of named-account customers and is leaving more sales to its 6,000-plus partners, said Alex Pinchev, Red Hat executive vice president and president of global sales, services and field marketing, in an interview at Red Hat's Summit conference in Boston this week.

Red Hat also plans to expand its Channel Acceleration program, initially geared toward resellers of the company's virtualization software, to all partners. And a new partner training and certification program is in the wings.

"Our business is very-well positioned to scale up sales through our partners," Pinchev said in a Summit press conference earlier this week. "We see growing demand from our partners all across our product lines."

Red Hat traditionally focused on direct and OEM sales when its Red Hat Enterprise Linux operating system software accounted for most of its business. That began to change in June 2006 when the company acquired JBoss, the developer of the open-source application server with the same name that became the core of a growing line of middleware products.

Since then the company has continued to expand its software offerings to include virtualization, systems management and identity management products. Last year the company broke into the cloud computing arena with its Red Hat Cloud Foundations software. This week the company added to its cloud offerings with the new CloudForms Infrastructure-as-a-Service and OpenShift Platform-as-a-Service software.

NEXT: Red Hat's Plans To Boost Channel Sales

Today the channel accounts for between 60 percent and 65 percent of Red Hat's sales, according to Pinchev. That includes OEM sales and sales through VARs, ISVs, systems integrators and other partners by way of distributors under a two-tier distribution model. For Red Hat's fiscal 2011 ended Feb. 28, partner sales worldwide grew 34 percent.

Pinchev said that as recently as three or four years ago Red Hat was still working to get its channel act together and partners complained that the company was hard to work with. "It takes time to build a partnership culture in the company," he said. "I think we're there."

While he declined to provide specific numbers, Pinchev said that since the beginning of the fiscal year in March Red Hat reduced the number of accounts it sells to directly, leaving more to be serviced by channel partners. A number of sales representatives were transferred to channel sales support. The company continues to sell directly to what Pinchev described as a small number of large named accounts, including several major financial services companies.

Virtualization software is the most popular Red Hat product with channel partners. Last November Red Hat launched the Channel Acceleration program for partners who resell the company's virtualization software, providing special discounts, technical support and training. That program will be expanded to all partners over time, Pinchev said.

Also on tap is the Red Hat Ambassador training and certification program that will roll out to partners over the next two to three months, according to Pinchev. And Red Hat Pathways, a set of new service offerings the company is building for customers, will be made available through the channel.

Red Hat continues to recruit new partners, but Pinchev said the focus is on getting current partners to carry a broader range of the company's products and to add services around those products. He said partners generate between $4 and $10 in services revenue for every $1 of middleware sales.

While virtualization software will continue to be Red Hat's biggest channel seller, Pinchev said the new CloudForms product "is a fantastic platform for partners to build services on."